Perhaps best known as the company that brought you Farmville, Zynga (NASDAQ:ZNGA) wowed the gaming world and shareholders alike when it reported third-quarter 2019 earnings a few months ago. Now it’s time to roll out our ZNGA stock earnings preview as the official fourth-quarter earnings announcement is scheduled for Feb. 5.
If you’ve frittered away precious hours of your life playing one or more of Zynga’s games on your phone, you’re certainly not alone; more than a billion people have played a game in the Zynga lineup. The earnings report is no game, however, as there’s tremendous pressure for the company to prove that those impressive third-quarter revenues were more than just a fluke.
Will Zynga exceed expectations once again, or is it game over?
Zynga Racks Up a High Score in Q3
In the hope that I’ll give the gaming puns a rest for a moment (don’t count on it), let’s delve into Zynga’s most recent earnings results and look for clues as to how the company may have fared in Q4. As recorded in the company’s executive summary, company-specific history was made in what turned out to be a spectacular three months:
“In Q3, we achieved our highest quarterly revenue and bookings in Zynga history, with mobile revenue up 54% year-over-year and mobile bookings up 64% year-over-year … Revenue of $345 million, up 48% year-over-year, and bookings of $395 million, up 59% year-over-year…. Mobile revenue of $328 million, up 54% year-over-year. Mobile bookings of $378 million, up 64% year-over-year … Record mobile online game — or mobile user pay — revenue of $266 million, up 78% year-over-year, and mobile user pay bookings of $316 million, up 90% year-over-year.”
As you can see, Zynga clearly leveled up in last year’s third quarter (sorry, my pun addiction is beyond redemption at this point). With numbers like those, you’d think ZNGA stockholders would have bid the price up to the moon; interestingly enough, though, the share price has gone absolutely nowhere since that earnings report.
CEO Frank Gibeau has done his best to bolster shareholders’ confidence, declaring that Zynga is “on track to be one of the fastest-growing — if not the fastest-growing — gaming company at scale.” Still, Gibeau’s got his work cut out for him as the share price is about a third of the 2012 apex of around $15.
Big Dreams and High Hurdles
I have to give credit to Gibeau for having a strong vision as he endeavors to divest Zynga of its image as a sometimes-annoying purveyor of Facebook (NASDAQ:FB) games (and ads … lots of ads). The CEO, who spent 25 years at Electronic Arts (NASDAQ:EA) before taking on this job, essentially conceded that the company’s reinvention has been crucial: “You can turn yourself out of position, which frankly Zynga did by being so focused on Facebook.”
Thankfully, Gibeau appreciates the need for change — and he’s evidently aware that the future of Zynga might not reside in smartphones at all: “Ten years from now, I know for a fact that the platforms will be different … There could be other platforms — like streaming platforms, cloud-based gaming,” posited the CEO.
As for the upcoming earnings announcement, it’s been set rather high. I take no issue with rosy expectations, but high hopes can set short-term, long-side traders up for disappointment (and financial hardship). The expectation for Q4 in particular is earnings of 6 cents per share, which would represent a +200% year-over-year change, along with revenue of $417.57 million, signifying a +56.2% change compared to the same quarter of the prior year.
Thus, shareholders are playing a dangerous game (there I go again…) in placing long-side bets now. I don’t have a problem with holding through the earnings announcement, but adding shares in the face of such high expectations would be hasty and overconfident; instead, it might be more prudent to see if the share price drops and then consider adding to your position at a lower price.
ZNGA Stock Earnings Preview: The Takeaway
Zynga has come a long way since the peak popularity of Farmville and those incessant Facebook ads (thank goodness). I appreciate the CEO’s forward-looking vision but hesitate to front-run a high-risk earnings report — if the share price drops, however, I’m game.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.